East Germany Rearguard
Only investments in education will lead to a further catch-up
Dossier

In a nutshell
The East German economic convergence process is hardly progressing. The economic performance of East Germany stagnates between 70 and 80% of West Germany's level, depending on the statistical figure used. The productivity gap between East German companies and equivalent groups in the west remains even if firms of the same size of workforce and the same industry are compared.
Politicians' and economists' explanations for this development differ: While politicians are more likely to argue with the start-up difficulties, the lack of large-scale research firms and the break-up of the East German markets, scientists have brought lack of investment in education and research, the lack of internationality and insufficient innovations – and thus future-oriented arguments – to the forefront.
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In the first half of the 1990's, policy focused on the build-up of physical infrastructure. East Germany's economic performance increased substantially. “This process benefited from transfers from West Germany, which is why productivity advanced faster compared to other transition countries such as Poland, Hungary or the Czech Republic,” says Oliver Holtemöller, IWH Vice President. Today, the East-German physical infrastructure is on the same level as West Germany. However, the fact that the catch-up process has remained slow thus far, also in terms of the employment structure in East Germany, has other causes.
Demography
While the population in West Germany had been stagnating since the turn of the millennium and recently even increased, East Germany suffers a decline in population of about 15% since 2000 since many people left East Germany after the German unification. “On the one hand, the decline can be explained by natural demographic development. On the other hand, people still have better economic perspectives elsewhere and therefore move,” Oliver Holtemöller points out. Indeed, in 2015, the population increased in East Germany as well. But this is mainly due to the extraordinary influx of refugees who are distributed to the federal states of Germany according to a fixed ratio.
Insufficient investment in education and research
To improve the economic situation, it is essential to invest in education and research – from early childhood development to academic training. Education does not only enable people to participate in the labour market with equal chances but also fights poverty and unemployment, which is far more sustainable, for example, than the widespread minimum wage. Education is the key to innovation and productivity. The same is true for investments in research and development. In 2012, for example, Saxony-Anhalt spent just 1.5% in relation to GDP, which was the lowest number among all 16 German federal states.
Lack of internationality
The German economy is strongly oriented toward international markets. Here Saxony-Anhalt has a long way to go as an East German state – foreign sales as a percentage of the total sales the manufacturing sectors is about 30%, well below the national average of 45%.
“The partial manifestation of xenophobia aggravates the situation,” says Holtemöller. On the one hand, this is a negative location factor: For example, in Saxony-Anhalt, the number of right-wing criminal offenses is twelve times higher than in Hesse. This makes it extremely difficult to attract qualified specialists from foreign countries to settle in East Germany.
“A one-sided orientation toward physical capital and technology will not help to bring East Germany forward. The key future drivers are human capital, creativity and open-mindedness,” summarises the Vice President.
Info Graphics
The German economy has overcome a period of weakness following reunification

Gross domestic product per capita, purchasing power parity, 2011, international dollar
Degree of openness of the German economy

Gross domestic product per capita, purchasing power parity, 2011, international dollar
Current account balance

Relative to gross domestic product, in %
Productivity differences in Germany between west and east

Gross domestic product in current prices per employee
East-west differences in productivity in companies of all sizes

East-west differences in productivity in companies of all sizes

Hardly any corporate HQs in East Germany

Headquarters of the TOP 500 companies in Germany 2016 ranked by DIE WELT
East-west productivity differences are smaller in rural areas than in cities

Gross domestic product per employee in urban and rural spaces in East Germany including Berlin, spatial category in West Germany = 100
Economic output per resident in German regions compared to European regions

Gross domestic product (GDP) in purchasing power parities (PPS) per capita 2016
Economic output per capita in East Germany higher than in the Visegrád countries

Gross domestic product per capita in purchasing power parities relative to Germany, in %
Germany‘s regional income disparity has lessened compared to other European regions

Variance of gross domestic product, lograrithmised, purchasing power parities
East Germany has only recorded a more favourable development of economic output than West Germany in 11 out of 26 years

Yearly rate of change of gross domestic product, price-adjusted, chain-linked, in %
Average wage: clear east-west divide in salaries

Median of monthly gross wages of full-time employees liable to the social insurance system; Germany = 100, 31.12.2017
Services are the main source of added value and employment

Absolute change in gross value added in current prices and in employment by industries
Underemployment rates: large regional differences

Underemployment quota in Germany = 100, 2017
Lack of capital of no significance for East Germany‘s productivity shortfall

Gross fixed assets at replacement costs in East Germany including Berlin relative to West Germany, in %
In East Germany, rural regions gained aboveaverage benefit from regional aid – but the period of generous subsidies is over

Investment grants to commercial businesses from 1991 to 2017
In East Germany, rural regions gained aboveaverage benefit from regional aid – but the period of generous subsidies is over

Investment grants to commercial businesses from 1991 to 2017
East-west migration: net emigration comes to a halt

Out-migration from East Germany to West Germany, in-migration to East Germany from West Germany, migration balance, from 1989 to 2015
Population development in East Germany: an increase from 2013 onwards as a result of overseas migration gains

Population development in East and West Germany in the period from 1990 to 2015 by components, yearly population change (number of persons)
Internal migration: the population of rural areas in East Germany has continuously declined since 1999

Balance of internal migration per 1,000 inhabitants
Decline in working-age population in East German territorial areas until 2060 more than twice as big as in West Germany

Index of development of population at employable age (20 up to below 67 years) based on the updated 13. coordinated population projection by the Federal Statistical Office, year 2015 = 100
Migration gains from the EU: significantly lower in East Germany than in West Germany

Cumulative net migration gain per 1,000 inhabitants, Germany = 100
EU blue card: Berlin has a clear lead

Blue card recipients per 100,000 employees in the federal states in 2017
Proportion of people with a migrant background in East Germany and rural regions well below the federal average

Share of population without and with migration background in 2017 in % (total population = 100)
Percentage of foreigners seeking asylum: well above average percentage in East German territorial areas, with a lower percentage of foreigners

31.12.2016
Specialist staff vacancies: a growing problem in East and West German companies

Vacancies, 2007 to 2017, in %
Part-time work: lower proportion of part-time staff in East Germany

Part-time employment and share of part-time employment in total employment, 1997 to 2017
Tertiary education is falling behind in East German territorial areas

Employment in the federal states by education level, ranked by the share of employees with tertiary education
Tertiary education is falling behind in East German territorial areas

Employment in the federal states by education level, ranked by the share of employees with tertiary education
Large regional differences in school drop-outs

Early school leavers: share of school leavers who do not possess a Certificate of Secondary Education in the total number of school leavers in 2016, Germany = 100
In East Germany and structurally weak West German states, SMEs make an above-average contribution to the economy‘s research and development spending

Internal R&D expenditures in the corporate sector by employment size of firms 2015, in % (total expenditures per state or region = 100)
Baden-Wuerttemberg, Berlin, Lower Saxony and Bavaria spend above-average amounts on research and development

Share of internal R&D expenditures 2016 in gross domestic product by federal states and regions, current prices, in %
Excellence clusters: East German territorial areas underrepresented in cutting-edge research, with the exception of Saxony

Share of the federal states in the 57 excellence clusters of German universities in relation to the share in total population in Germany, in %
In industry, companies of below-average size tend to be associated with lower export rates

Employees per enterprise, share of exports in total turnover, 2017, enterprises belonging to firms of the manufacturing sector, mining and quarrying of 20 and more employees
East Germany‘s transfer dependency has fallen, but still exists

Gap between expenditure and gross domestic product in East Germany including Berlin, absolute volume and relative to the GDP in West Germany
2017 tax coverage ratio: still an east-west divide

Tax revenues as a percentage of adjusted expenditures, in %
Not all municipalities anticipate demographic change in their investment decisions

Distribution of municipal investment in fixed assets per resident in Euro for the years 2013 and 2014
Publications on "East Germany"

Aktuelle Trends: Ostdeutschland macht im Jahr 2019 im Ost-West-Vergleich in puncto Produktivität einen weiteren Schritt nach vorn
in: Wirtschaft im Wandel, No. 2, 2020
Abstract
Ostdeutschland konnte laut Daten des Arbeitskreises „Volkswirtschaftliche Gesamtrechnungen der Länder“, die Ende März 2020 veröffentlicht wurden, im Jahr 2019 in puncto Produktivität im Vergleich zu Westdeutschland einen weiteren Schritt nach vorn gehen.

The Effects of German Regional Policy – Evidence at the Establishment Level
in: IWH Online, No. 5, 2020
Abstract
The “Joint Task ‘Improving Regional Economic Structures’ (GRW)” represents the most important regional policy scheme in Germany. The program provides non-repayable grants as a share of total investment costs to establishments (and municipalities) in structurally weak regions. The definition of eligible areas is based on i) a composite indicator measuring regional structural weakness and ii) a threshold determined by the European Union consisting of the population share of the respective country that lives in assisted regions. Responsible for the selection of the supported projects is the respective Federal State in which the GRW project is applied for.

Ostdeutschland - Eine Bilanz
in: One-off Publications, Festschrift für Gerhard Heimpold, IWH 2020
Abstract
Anlass dieser Festschrift ist die Verabschiedung von Dr. Gerhard Heimpold, dem stellvertretenden Leiter der Abteilung Strukturwandel und Produktivität am Leibniz-Institut für Wirtschaftsforschung Halle (IWH), aus dem aktiven Berufsleben in den wohlverdienten Ruhestand. Gerhard Heimpold forschte am IWH zu Aspekten der Regionalentwicklung Ostdeutschlands unter Beachtung des politischen und wirtschaftlichen Transformationsprozesses. Er gehört heute zu den wenigen Experten in Deutschland, die umfassende ökonomische Kenntnis über den gesamten Verlauf des Transformationsprozesses der ostdeutschen Wirtschaft seit Mitte der 1980er Jahre vorweisen können. Gerhard Heimpold hat im Laufe seiner akademischen Ausbildung und seiner ersten wissenschaftlichen Tätigkeit tiefe Einblicke in die Ausgestaltung und Funktionsweise der sozialistischen Planwirtschaft der DDR erhalten und konnte dieses Wissen nach dem Mauerfall 1989 in wichtige wissenschaftliche Beiträge auf dem Gebiet der internationalen Transformationsforschung einbringen.

Mikrofundierte makroökonomische Resultate der ostdeutschen Transformationswirtschaft
in: Contribution to IWH Volume, Festschrift für Gerhard Heimpold, IWH 2020
Abstract
Mit zunehmend zeitlichem Abstand seit der Wiederentstehung eines vereinten Deutschlands schwindet im Alltag das Wissen und in Forschung und Lehre das Verständnis der bewegenden Kräfte um dieses historisch einmalige und bis in die Gegenwart nachwirkende Ereignis. Die Zeitzeugen und die Mitgestalter der damit verbundenen Transformation einer Zentralplanwirtschaft verlassen altersbedingt die Bühne, und die nachrückenden Generationen wenden sich anderen Herausforderungen zu. Denn heute stehen erneut, aber ganz anders geartete Transformationsprozesse auf der Tagesordnung: Gefragt sind Antworten auf den Klimawandel, den Ausstieg aus der Energiegewinnung durch fossile Brennstoffe, die Digitalisierung der Produktions- und Verbrauchsprozesse, die Verkehrswende und anderes. Schnell wird dann die Transformation einer ganzen Wirtschaftsordnung von der Agenda verdrängt, und die systemischen Zusammenhänge sowie das Verständnis der längerfristigen Folgen dieses historischen Wendepunktes für Deutschland treten in den Hintergrund und geben den Platz frei für oberflächliche Vereinfachungen. Der Systemwechsel verschwindet im sprachlichen Alltag hinter Schlagworten wie “Wende” und Ost-West-Vergleiche, in denen historische Bruchstellen geglättet bzw. sozioökonomische Inhalte durch die Projektion auf Himmelsrichtungen ersetzt werden. Selbstverständlichkeiten aus der Zeit des Umbruchs gehen unter oder werden durch Halbwahrheiten verzerrt wiedergegeben.

Die Entfaltung einer Marktwirtschaft – Die ostdeutsche Wirtschaft fünf Jahre nach der Währungsunion
in: Contribution to IWH Volume, Festschrift für Gerhard Heimpold, IWH 2020
Abstract
Die Öffnung der Mauer am 9. November 1989, die Einführung der Deutschen Mark (DM) in der DDR zum 1. Juli 1990, die Wiedervereinigung am 3. Oktober 1990: Diese drei Daten markieren vor dem Hintergrund des Zusammenbruchs des Sozialismus in Osteuropa eine historische Umwälzung, die nicht nur die politischen Verhältnisse in Deutschland grundlegend verändert hat, sondern auch eine neue deutsche Volkswirtschaft hervorbringen sollte. Das marktwirtschaftliche System, in dessen Ordnungsrahmen der Westen des Landes zu Wohlstand gekommen ist, würde nun – so waren die Erwartungen – auch im Osten des Landes eine dynamische Wirtschaftsentwicklung einleiten und die Mangel des sozialistischen Systems der DDR vergessen machen. Die Erwartungen waren hoch, ja euphorisch. Durch die Aufhebung aller Einfuhrbeschränkungen und die Ausstattung der DDR-Bürger mit konvertibler DM wurden lange aufgestaute Konsumwünsche rasch erfüllbar. Weil nicht mehr wie zuvor chronische Materialengpässe immer wieder Produktionsstillstand verursachen würden, konnte ein sprunghafter Effizienzzuwachs in der Produktion erwartet werden. Das Unternehmertum, in der DDR systematisch eingeengt und bis zur volkswirtschaftlichen Bedeutungslosigkeit reduziert, würde sich entfalten und für Arbeitsplätze und steigende Einkommen sorgen. Angesichts des Nachholbedarfs an Modernisierung im Maschinenpark und in der Infrastruktur versprachen Investitionen im Osten eine hohe Rentabilität; das musste einen reichlichen Zustrom auswärtigen Kapitals auslösen. Zwar würde der Übergang vom Sozialismus zur Marktwirtschaft auch Lasten verursachen, aber nach verbreiteter Auffassung war nur eine „Anschubfinanzierung“ als finanzielle Unterstützung für den Osten durch den Westen nötig. Skeptische Stimmen, die in Ostdeutschland keine signifikanten Standortvorteile entdecken konnten und deswegen einen schmerzhaften Transformationsprozess erwarteten, gab es auch, doch wollte ihnen kaum jemand Gehör schenken. Zu sehr waren die Hoffnungen auf wirtschaftlichen Wohlstand ausgerichtet; die Befreiung von jahrzehntelanger staatlicher Bevormundung und Einschränkung stärkte die Einschätzung, dass das Erhoffte mit entsprechender Anstrengung auch erreichbar ist. Der „Aufholprozess“ – der Abbau des Einkommensrückstandes gegenüber Westdeutschland – schien nur eine Angelegenheit von wenigen Jahren zu sein.